March 14, 2005

Private Accounts: Road to Solvency (tip to Kudlow)

Peter Ferrara says that private retirement accounts can make Social Security solvent - without the need for a tax hike or benefit cut.

    The bill proposed by Rep. Paul Ryan, Wisconsin Republican, and Sen. John Sununu, New Hampshire Republican, is a good example of how this works. The bill would allow workers on average to shift about 6.4 percentage points of the 12.4 percent Social Security tax to the personal accounts. To the extent a worker exercises this option over his career, the account would then substitute for a proportionate share of his future Social Security retirement benefits.

    The official score of the Social Security chief actuary shows these accounts would reduce currently projected Social Security expenditures for retirement benefits 40 percent by 2040, 67 percent by 2050, 80 percent by 2056, and ultimately by 95 percent. Workers would then get much higher benefits through their personal accounts, because of the much higher returns in the private capital markets than Social Security promises, let alone what it can pay.
According to the chief actuary of the Social Security system, a number of private account methods would address solvency permanently. So let's see:

- no tax hikes
- no benefit cuts
- permanent solvency for the antique Social Security system
- much higher rates of return from the private account system

I sure hope this analysis is right, because it's a wonderful solution.


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